Broadcom's Best Deal?

People are still debating Broadcom’s (AVGO) announcement last week it will spend $19 billion to acquire software maker CA (CA), with a healthy debate over the merits and drawbacks of the deal.

Broadcom shares are up $1.88, or 0.9%, at $204.34, while CA is down 3 cents $44.04, just below the deal’s offer price of $44.50.

For the bullish view, Piper Jaffray’s Harsh Kumar reiterates an Overweight rating on Broadcom stock, and a $293 price target, after having talked to CFO Tom Krause on Friday, a chat that left him “extremely comfortable with the CA acquisition."

"In our humble opinion, it may end up being one of Broadcom’s best acquisitions over the last several years."

Kumar writes that Broadcom will tweak some things, leaving others alone. For example, for the $2.2 of mainframe business, “we feel Broadcom will likely leave this business alone, except for small tweaks.” For the “enterprise solutions” software, “this is where things get interesting,” as it can "have a very similar profitability profile” to mainframe "with some small changes to the cost structure."

For the cautious view, Mizuho’s Vijay Rakesh, who has a Buy rating on the stock, cuts his price target to $280 from $310, writing that despite investors receiving "callbacks with management," there's a lot of "investor pushback at an unexpected surprise from a big software acquisition" that strays from Broadcom's focus.

"While AVGO could now become a rollup vehicle for both semiconductor and software names, we believe it could remove focus on execution," he concludes.

Not So Excited for Netflix’s Report

Shares of Netflix (NFLX) are up $1.33 at $397.13, in advance of the company’s Q2 earnings report this afternoon, after the closing bell.

Numbers to watch include $3.94 billion in revenue and 79 cents earnings per share, and net subscriber additions of 1.2 million domestically and 5.04 million internationally.

Some concern is being expressed about what may be underwhelming results, as I mentioned on Friday. Citigroup’s Mark May reiterates a Neutral rating on the shares, writing that the “near-term setup” for the stock “may not be favorable."

The stock has gotten one downgrade, from Buckingham Research’s Matthew Harrigan, who cut the stock from Neutral to Underperform, while raising his price target to $333 from $301, after concluding that the stock is baking in some aggressive expectations for Netflix streaming subscribers way out into the future.

“Its current stock price implicitly discounts achieving 360M global members in 2025 on the way to 505M in 2033, as well as a long- term (2033) near 35% operating profit margin–above BRG's (actually bullish) 324M 2025 and 447M 2033 subscriber estimates."

Crazy for Faang

Illustration:
Getty Images

It would appear Faang names are still hot properties for the moment. Credit Suisse’s Stephen Ju this morning took the opportunity to raise price targets on multiple names, including Facebook (FB), Alphabet (GOOGL), eBay (EBAY), and Amazon (AMZN), all of which he rates at Outperform.

Ju raises his Facebook target to $265 from $240, after hearing in his conversations with advertisers that Instagram is now making up 20% of "budgets spent,” which will help prop up overall ad revenue for Facebook despite lower “ad load” on the main property.

For Amazon, he likes the company’s "aggressive expansion” into new markets, such as the online drug business with the purchase of PillPack, which “will open up another ~$300 billion consumer [market] with very low online penetration."

He thinks Amazon’s Q2 report will include the AWS cloud-computing outfit having "ongoing revenue growth acceleration” and the newer advertising business showing "greater profit dollars.” That may help the company’s Q3 forecast "break the seasonal pattern of reporting lower profit dollars than 2Q, and become the new normal."

Amazon shares are up $18.98, or 1%, at $1,832.01, while Facebook is up 76 cents at $208.08.

Enthusiasm for ASML

Shares of semiconductor-equipment maker ASML (ASML) are up $1, or half a percent, at $200.19, after analyst Steve Mullane of BlueFin Research Partners, returning from last week’s Semicon West trade show in San Francisco, raised his rating on the stock to “Positive” from Neutral, writing that he’s encouraged by improvements he’s heard about for ASML’s gear.

Mullane had two concerns going into the show: the “up-time” for ASML’s equipment, and the pace of operation of the machines, in terms of how many wafers could be processed per hour in the system.

He’s now hearing of “real throughput” for the machines of 70 to 75 wafers per hour, which is “above the cost-effective line for production.” He also hears the company is making changes to a key part, the “mirror housing environment,” which “will have a big impact in improving the system up-time."

The result of all that is that production plans at two major customers, Taiwan Semiconductor Manufacturing (TSM) and Samsung Electronics (005930KS) are "on track for EUV pilot lines in Q4 for the 7nm+ and 7nm, respectively.

"They are both racing to be first for EUV production with ramp plans in Q1:19."

Roku's New Gear

Roku TV wireless speakers

Shares of streaming TV service pioneer Roku (ROKU) are down 59 cents, or 1.2%, at $48.17, after the company this morning announced a new pair of speakers designed specifically to accompany TV sets that run Roku's software, costing $199, or $149.99 if pre-ordered by July 23 from the company's Web site (no retail distribution at this point).

The speakers are designed to easily pair with the TV sets (they don't work with other TVs), and they come with two remote controls. One is a voice remote that lets you issue commands like "search for action movies." It's not the same as Amazon's "Echo" devices in that it is not always listening, it needs to be picked up and pressed to activate the speech microphone. And the other is a touch-based tabletop remote control.

Savitz's Back Pages

Savitz's ancient Barron's column.

In the whimsy department, former Tech Trader Eric Savitz, who founded and wrote this blog through 2010, offers a great anecdote over the week, posted on his Facebook page. A friend bent down to tie his shoe on a New York City street the other day and found an old, marked-up print column by Eric from over a decade ago. It was a story discussing how Intel (INTC) should dump its flash memory-chip division.

We'll give Eric the benefit of the doubt that this is not a shaggy-dog story, just a very weird random occurrence.

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